Rustici GMU Econ 104 Exam 3

Which of the following is true with respect to government policy and America's Great Depression?

The federal government twice instituted minimum wage laws causing massive unemployment in labor markets.

Which of the following is true?

The price system in the capital market (the real interest rate) was sabotaged by a structurally unsound central banking system.

Which of the following is not true?

The classical model failed in the 1930's because it had great difficulty explaining the severity of the Great Depression.

True:

- I aggregate demand increases, and aggregate supply is inelastic, the price level will rise.

- The "spending multiplier" of Keynes is defined as 1/(1-b)(1-tax).

- A repressed inflation arises from accelerating inflation and maximum price controls.

- Aggregate supply is the "Q" part of the quantity equation of exchange.

Which of the following is true?

A saver's deposits are assets and liabilities to the bank receiving the deposit.

Suppose we have two people Smith and Jones. Each person wants both one of each a pineapple and a coconut. Below is their respective time forgone with gathering each good. If the price is one pineapple for one coconut, which of the following is correct?

Smith

Pineapple 50 minutes

Coconuts 160 minutes

Jones

Pineapple 200 minutes

Coconuts 180 minutes

Smith produces pineapples and exports them for his coconut consumption.

Assume the following information. The deposit to currency ration is 0.2 and the reserve deposit requirement ratio is 0.1. If the monetary base in the economy is $100 billion, the total money supply is:

$400 billion

Suppose the following percentage data is known about the quantity equation variables: M^4%V^1%=PQ^2%. What will be the resulting inflation or deflation of nominal prices?

Increase of 3%

M+V^5%=Q^2%

3%

What is true with respect to US economic policy following WWI?

The government cut taxes and paid down the national debt by 10% during the recession.

Which of the following is a correct statement concerning classical economists and the Great Depression?

They believed that "elasticity" was important to understand the mistake between "high wage rates" and "high total wage income".

The following question is from T. Rustici's essay, "Banking Crisis and the Great Depression". Which of the following is true?

The bank runs in Europe followed the collapsing spiral of international trade because of the escalating tariff wars.

This question is from T. Rustici's essay, "Banking Crisis and the Great Depression". The Interregnum Crisis was caused by what political action?

President elect Roosevelt deliberate rumors about leaving the Gold Standard.

In his piece, Stones into Bread: They Keynesian Miracle, Ludwig Von Mises is responding to John Maynard Keynes' policy proposals on what two aspects of the economy?

Money and Credit.

In, The Economics of Abundance, Friedrich A. Hayek is similarly responding to the claims of John Maynard Keynes. What key concept in economic thought does he accuse Keynes of forgetting?

Scarcity.

This question comes from the essay, "Herbert Hoover Father of the New Deal" by Dr. Steve Horowitz. Which of the following is true about Herbert Hoover?

He favored labor unions and restricted immigration to raise wages.

Exam 3: You are appointed as Chairman of the Board of Governors of the Federal Reserve System. Suppose people have no expectations. If you want an expansionary monetary policy to lower interest rates, you would:

Lower reserve requirements on banks.

Suppose the long-run nominal interest rate is 10% and the real or natural rate of interest is 6%. What does this tell us?

The price level is expected to rise 4% over the next year.

Suppose we are in a depression and assume as "given" all of the Keynesian model assumptions about the macro economy. Further, suppose the real GNP is a stationary equilibrium at $4 trillion. Also assume the full employment size of the real GNP is $5 trillion. If the marginal propensity to save (MPS) is 0.2 or 20%, what would Keynes suggest occur to restore full employment?

The government run a budgetary deficit of $200 billion.

In the "Central Bank Role of Clearinghouse Associations" Richard Timberlake notes that clearinghouse associations issued emergency currency in the form of "clearinghouse load certificates". Which of the following is true?

Clearinghouse certificates helped stabilize the banking system during panics.

This question related to the essay "New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis," by Professors Harold Cole and Lee Ohanian. Which of the following is true?

The NIRA created industry cartels to limit competition and raise wages above equilibrium levels, and the National Labor Relations Act (Wagner Act of 1935) allowed unions to use coercion with "sit down strikes" occupying factories to halt production.

This question related to the essay "New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis," by Professors Harold Cole and Lee Ohanian. In their essay, provide the statistical evidence that demonstrates:

New deal policies did not bring the economy out of the depression, they stopped a normal recovery by restricting employment.

In the R. Vedder and L. Galloway essay entitles "From New Era to New Deal", the empirical case is made by the very high cyclical unemployment experienced during the Great Depression can be easily explaine dby which of the following?

A productivity adjusted wage model for the labor market.

This question relates to the essay "Wartime Prosperity: A Reassessment of the Economy in the 1940's," by Dr. Robert Higgs. Which of the following is true about the US economy during WWII?

The real economy was incorrectly overstated because the price level was understated from under counted inflation and maximum price controls.

This questions relates to the essay "Wartime Prosperity: A Reassessment of the Economy in the 1940's," by Dr. Robert Higgs. Which of the following is not true, did not happen?

Consumer spending (MPC) increased during the war and pulled the rest of the economy out of depression.

True (did happen):

- Labor market statistics for unemployment were artificially skewed downward from military conscription (draft).

- Intermediate goods which should not be added to GNP were mistakenly added into GNP statistics.

- Prospects of "regime change in politics away from the New Deal" at the federal level increased positive investor expectations.

- As late as 1944, the Stock Market Indexes were virtually unchanged form their 1939 Depression values.